AT&T’s European Ambitions Include Regulatory Wish List

Oct. 8 (Bloomberg) -- AT&T Inc. sees new wireless
technology in Europe stimulating a slumping industry with
billions of dollars in network upgrades and blazing-fast mobile
service, with a caveat: Some rules need to be changed.

In a glimpse of its still-forming European strategy, AT&T,
the largest U.S. carrier, provided a wish list on what it would
like to see from regulators to make an investment there
worthwhile. During a visit to Europe today, Chief Executive
Officer Randall Stephenson called for consistent policies across
different countries and for airwave licenses that offer more
attractive terms for wireless companies.

“How you manage spectrum policy will determine how much
investment comes to Europe,” Stephenson said at the European
Telecommunications Network Operators’ Association summit in
Brussels.

Fragmented regulations, along with high unemployment and
price wars, have dragged the values of European carriers down
below their U.S. peers. Those cheaper valuations and a slowdown
in U.S. growth have AT&T contemplating whether to get in on the
early stages of the transition to high-speed mobile data in
Europe, which has lagged the U.S. on upgrading its wireless
technology.

Among the challenges for AT&T’s international expansion is
convincing its own investors of the merits of the strategy. The
history of cobbling together global carriers is dotted with
failures like Global Crossing, which went bankrupt in 2002, and
Concert, an ill-fated joint venture the old AT&T Corp. formed
with BT Group Plc to sell phone, data and Internet service to
companies worldwide. A weak European market also represents a
risk for Dallas-based AT&T, Craig Moffett, founder of researcher
MoffettNathanson LLC, has said.

More Conducive

Last month, Stephenson outlined the pros and cons of a
European expansion to investors at a Goldman Sachs Group Inc.
conference. Today he took his message to European industry
officials. Stephenson said companies like AT&T need assurances
that public policy can be conducive to investment in European
networks, which need upgrades to long-term evolution, or LTE,
technology.

At the top of Stephenson’s wish list is an overhaul of
rules governing spectrum, the radio signals that allow mobile
phones to make calls and connect to the Internet wirelessly.
Those airwaves are considered a public good, and governments
auction off licenses for their commercial use.

Longer Leases

Stephenson said he is looking for changes to airwave
ownership rules that give carriers the ability to control broad
areas of territory over long periods of time so that there is
incentive to build for the future. Some countries offer leases
of about 10 to 12 years, compared with 30 in the U.S., and can
re-auction the airwaves to other carriers when licenses expire.
It’s also difficult to build a pan-European network since each
country sells different portions of spectrum according to its
own schedule.

“Randall is simply being transparent with investors about
AT&T’s desire to expand internationally and that European
wireless has long-term attractiveness,” said Kevin Roe, an
analyst with Roe Equity Research LLC in Dorset, Vermont.

Stephenson also said Europe needs a market where operators
can swap spectrum, letting them assemble pieces of their network
to become more efficient. And he called for regulators to stop
designating specific technology, such as 3G data, for certain
airwave licenses, giving companies more flexibility to use the
spectrum as they see fit.

Vodafone Interest

AT&T has considered bids for European companies including
Newbury, England-based Vodafone Group Plc, people familiar with
the matter have said. It could pick up Vodafone -- now that the
British company is selling its stake in AT&T rival Verizon
Wireless -- for 6.3 times earnings before interest, taxes,
depreciation and amortization, according to estimates from
Sanford C. Bernstein & Co. That would value Vodafone at about
$130 billion, based on data compiled by Bloomberg. AT&T trades
at 14 times earnings.

After his presentation today, Stephenson declined to
comment on potential acquisitions.

European Commissioner Neelie Kroes also called today for a
revamp of the European Union’s telecommunications regulations.
She’s seeking to end roaming charges for phone calls and
Internet use and to make spectrum allocation more uniform and
predictable.

“We have listened to industry concerns, so that pan-European deals can come onto the market, sustainably, available
for all as soon as possible,” Kroes said at the event in
Brussels. Her plan requires approval by EU governments and the
European Parliament.

Lagging U.S.

Europe has lagged the U.S. in mobile Internet performance
both because of a weak economy and the lack of cohesive
regulations across more than two dozen countries, said Roger
Entner, an industry strategist with Recon Analytics in Dedham,
Massachusetts.

Stephenson’s prescription for Europe: Be more like the U.S.

“In six years, Europe has gone from first in network
technology to one of the last among developed countries,”
Stephenson said. “I’m strongly of the mind that it will evolve
here.”

AT&T is betting that the European Union is shifting its
view, Entner said.

“Regulatory flexibility has helped the U.S. take world
leadership on technology,” Entner said. “Right now I think
European regulators would welcome AT&T coming to Europe, given
the investment intensity they’ve shown in the U.S.”